First inflation report under new Fed chief shows prices still rising

The first inflation report under new Federal Reserve chief Kevin Warsh was released on Thursday, and it shows consumer prices in April were at their highest level in almost three years.

The personal consumption expenditures price index — the Fed's preferred inflation measure — rose last month at an annual rate of 3.8%, the Commerce Department reported on Thursday. That's up from 3.5% in March and 2.8% from February, and the highest since May 2023.

Economists had expected April's PCE report to show annual inflation rising to 3.9%, according to economists polled by FactSet.

So-called core PCE, which excludes volatile energy and food prices, rose 3.3% in April on an annual basis, in line with economists' forecasts.

Warsh is stepping in as Fed chief with a major challenge on his hands, given that inflation is flaring due to the impact of the Iran war on energy prices. Earlier this year, the central bank had forecast one interest rate cut in 2026, a prediction that economists now say is growing less likely given the jump in fuel costs.

Complicating his challenge is President Trump's eagerness for the central bank to lower borrowing costs for consumers and businesses, which would boost economic growth.

While the rise in consumer prices in April was slightly cooler than expected, "that's little comfort on Main Street, where people are facing the highest inflation in 3 years and having their wage gains wiped out by inflation," said Heather Long, the chief economist at the Navy Federal Credit Union, in a social media post.

Energy costs saw the biggest increase in April, but prices also rose in other spending categories, according to the Commerce Department figures. The costs of housing and utilities, recreation services and food services also saw large jumps in April, the data shows.

Some economists are now penciling in a possible rate hike later this year. There's now a 40% probability that the Federal Reserve will hike rates at its December meeting, up from 3% at its June meeting, according to CME FedWatch, which bases its predictions on 30-Day Fed funds futures prices.